Multinational production and intra‐firm trade

Intra-firm trade, from parents to affiliates, has been combined with standard models of multinational production (MP) deliver gravity-style predictions for foreign affiliates sales. Nonetheless, the evidence shows that intra-firm trade is concentrated among a small set large firms. Using firm level data 35 countries, we document only firms belonging corporations (MNCs) in upper tail firm's size distribution are significantly affected by distance their parents. We present simple framework featuring MNCs selection into and derive analytical gravity equations consistent empirical findings.